Wishful thinking

By Guest Blogger Doug Rowat

Steve Martin once said “A day without sunshine is like, you know, night”, so here’s my own helpful bit of obvious insight regarding the near-term direction of interest rates: They’re either going up or going higher.

The US Federal Reserve has already raised rates five times in a little over a year and consensus estimates as many as three more hikes before 2018 is over. And market odds of a rate increase at the Fed’s next meeting in June currently sit at a near-certain 97%.

But don’t let the short-term pattern fool you: the long-term interest-rate downtrend is intact. Each of the past four tightening cycles from the Fed, for example, took its benchmark overnight rate above 5%. But for that to happen this time we would have to see the Fed hike 14 more times (assuming 25 bps each time). Given that the average number of increases over the past four tightening cycles has been only 10 and we’ve already had six increases so far this cycle, another 14 would be an unlikely scenario indeed.

So, while interest rates and bond yields are still going higher, the overnight rate will probably stall out at about 3% or 3.5% and then we’ll, in all likelihood, witness a resumption of the long, inexorable, downward move in interest rates and bond yields. A whole variety of factors support this long-term trend not the least of which is an ageing population seeking safety and consistent income.

Demographics aren’t changing, but regardless, there’s little point in fighting a downtrend that’s lasted almost 40 years. And, of course, as bond yields fall, the expected return from bonds diminishes as well. The decade-by-decade slide in US bond returns, for example, is shown below:

A steady decline in US bond returns…

…partly a result of an ageing population

Source: Bloomberg

So, bond yields are going up for now and eventually the time will come to lock-in some longer duration bonds with more attractive yields, but longer term, bond yields, and ultimately their returns, are probably going to suck.

Generally speaking, the only way that bond yields improve is through price movement. This is true of equity yields as well, but equities have the added benefit of dividend increases. Over time, equity dividends grow at a rate that far eclipses inflation. Below I show the increase in S&P 500 dividends over 30 years. Historically, S&P 500 companies have grown their dividends at 5.9% per year.

All rise! S&P 500 dividend growth

Source: Bloomberg

Let’s make a simple comparison. Let’s assume two individuals retire tomorrow with a million bucks. One decides to live for the next 20 years off of only the dividends (and the expected 5.9% annual dividend increases) from their investment in the S&P 500, which currently yields about 2%. The other decides to live off of only the return from an investment in bonds (the Barclays Aggregate US Bond Index). I’ll grant the bond investor a historical annual return of 2.7%, which has been the average for this decade, even though, as the chart above suggests, there is a high likelihood that this return will diminish over the coming decades.

At the end of 20 years, the S&P 500 investor would have generated an aggregate income of more than $725,000. The bond investor receives just $542,000. I’ve also assumed that each gets their $1,000,000 principal after 20 years. But what are the odds of the S&P 500 having ZERO appreciation over 20 years? Exactly.

So, long term, bonds will provide a bit of income, and may, if you’re lucky, provide a return that beats the inflation rate. But their primary purpose is to stabilize your portfolio, which, to be clear, is a critically important role. But bond returns have been declining for decades and this will, in all likelihood, continue. Equites, meanwhile, not only provide better historical returns, but also consistently boost portfolio cash flow through dividend increases. The point here is that relying on a bond-only portfolio to get you to retirement and serve you well once you’re there is a hopeless strategy.

90 comments ↓

Interesting that the long term prediction on rates is flat or lower and aging demographic may be a major reason.
Millenials need not thank us Boomers.
Our long term balanced portfolio’s are thanks enough.

So, while interest rates and bond yields are still going higher, the overnight rate will probably stall out at about 3% or 3.5% and then we’ll, in all likelihood, witness a resumption of the long, inexorable, downward move in interest rates and bond yields.
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I understand why bonds are important in a portfolio. I completely agree with balance and diversification, both in life and investing. So my question is this, at what point of net worth do you stop investing in bonds and focus on capturing higher rates of returns?

I can understand going into retirement with a million and having a balanced portfolio. What if you went into retirement with 20 million, 50 million? Do you trash bonds and focus on generational wealth? I’m not in that position, I’m just courious to know when investment strategy shifts.

They yield consistently less than inflation and constitute pretty much ‘return free risk’.

Let’s be clear here:

Normally bonds are sovereign/corporate/municipal debt priced in ‘money’ and subject to interest rates that represent the real/market cost of money.

What we see on the bond market today is debt that is not measured in money (as the confetti/coupons with expiration date that we call money are actually currencies) and with rate that is not determined by markets (but by central banks).

So why would anyone even consider this ‘bonds’ when compared to stock market is a mystery to me.

But hey, there are plenty of idiots around these days, just look at Canadian housing market and bitcoin.

So all this talk about interest rates heading higher is only temporary, meaning afterwards rates will continue downward.

1) How is RE a bad investment then? From what I am reading RE is the way to go for the next 30-40 years.

2) Our weekday evening blog posts repeatedly mention global growth as a driving factor for higher rates. So I guess we now believe that is temporary too. If that is the case, shouldn’t the growth in our portfolios should be temporary as well? Where is this desire for equities coming from?

3) I always assumed money flowed between stocks and bonds. In times of fear money rushes to bonds for safety, and in times of calm back into equities. Didn’t central banks disrupt that natural flow but intervening and producing artificial demand for bonds, driving yields artificially lower than normal? A reversal of this trend should see rates shoot higher.

How can both the S and P 500 AND bonds increase in demand at the same time?

PS I don’t think anyone has 100% bonds. They are simply crap (yes I’m still 40% invested in them though).

Hi. Thank you for your insight on bonds, particularly short and long term trends. Very foxy. I’ll admit I own many long bonds, and made money in 2016. Now buying TIPS. Please Doug, your opinion on TIPS?

#14 Camille on 05.05.18 at 4:59 pm
Hi. Thank you for your insight on bonds, particularly short and long term trends. Very foxy. I’ll admit I own many long bonds, and made money in 2016. Now buying TIPS. Please Doug, your opinion on TIPS?

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Let me lookup the contact details of a good psychiatrist. Hope he/she/zer… can help.

TIPS are for idiots who believe that inflation is bellow 2 %.

It isn’t. It is 7-8 %, equal to cost of living increase.
It is the worse investment you can make.

There are actually retirees out there with a 100% weighting in bonds to live on?

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When it comes to new clients, seeing legacy portfolios with too little risk is almost as common as portfolios with too much risk. And the eroding effects of inflation are constantly overlooked. It’s a simple concept, but sometimes investors need to be reminded that a loaf of bread, litre of gas or a pair of shoes are absolutely going to cost more in 10 years. Bonds are not effective inflation fighters.

The more social unrest, the lower rates seem to go. The less social unrest, the higher they go.

The idea seems to be, create a situation where the 99% can afford things. Keep everyone working, keep everyone happy. The rich take it in the gut for the benefit of the rest, and in this way, they stay rich.

Everyone knows revolution and social upheaval is the only real way to re-set the status quo. Otherwise the wealthy stay wealthy, the poor stay poor. The 99% to 1% ratio doesn’t change.

So if you are the 1% then you lower rates, take it in the teeth for a few years, and then recover when things get better. Once everyone is working again, you can creep rates back up and earn back all the interest you lost when things were bad. Just maintain the illusion for the masses, so they “trust”, are content in their illusion and don’t want to rebel. Because, hey, there are way more of them then there are of you, and the only thing keeping you apart from them is a thin little line made out of pieces of paper that have value as currency, and the illusion of civilization.

Now that things are good again, it’s time to crush those who tried to join the ranks of the 1% on credit. That means “homeowners” (ie people who rented their house from a bank).

There are not enough of these people to cause social unrest. A group of 100 of them is trying to get help from the government to close on some million dollar houses they can’t afford anymore in Mattamyville. Good luck to them. “I need assistance with my million dollar house purchase. I chose the upgraded kitchen with granite. Please give me $200,000 of taxpayer money so I can close this deal”.

Yeah, no one likes people who pretend to be rich. Things are good again, and high end borrowers are going to get smooshed. Look for rates to go up for a while. ……

My thoughts exactly !
I am a mid fortiessingle male without any debts. Only a few hundred on a credit card . A great portfolio that is well diversified . Hold some bonds for stability and then Some bond etf’s within my equity portfolio along with preferred shares, rate reset preferred shares and their etfs cpd and zpr in Canada for monthlycash flows . I love my dividends that grow and continue to grow while my equity increases in value . Rising short term interest rates might also help me add on some bond etfs aid they decrease in values a bit .

So if bonds are such a terrible investment, how in the world is the US going to sell $1 trillion worth (and rising) every year? I guess they’ll have to start paying higher yields. Where are they going to get the money from to pay that?

I’ve never understood why to invest in bonds for the fixed income portion. Bond etfs have almost always lost capital in recent years. I can get 2.5% risk free in a liquid cash account at Tangerine Bank. No risk to capital and better yield than most bond funds.

Hey Doug, great talk tonight. I spent 6 years in r&d gathering clean calibrated data. I learned that it’s vital to make a proper scientific decision. Our work was used to make multi-million dollar decisions on process upgrades that, on one project, paid back in the first quarter of operation.

I really enjoy seeing not just a great blog, but knowing that you are backing it up with quality data.

Good post Doug. With rates increasing and equities doing fine, how come preferred shares index CPD is not back above 15 or 16 yet? I could guess but would appreciate your short answer as it relates to your topic. Thanks in advance.

Two words “capital gains”. A killing in the making if you buy AAA+ long term bonds or hopefully government bonds at the peak of the interest rate cycle and sell at the trough. Hint just know when they’re going to crash the stock market because it should rival the ’29 crash at the very least. That will be about the time to start selling the bonds.

I personally don’t like bonds and volatility doesn’t scare me, I had a 100% stock portfolio during the gfc. I didn’t sell and continued to buy up until I got married. Now I have a 60/40 split, I’m smart enough to know that my wife would really be angry if our portfolio dropped 30-40%. Happy wife happy life, better to try and smooth out the volatility with balance and diversification than it is to argue with my wife.

The stock market in America is the most overvalued since the year 1873. The corporate default rate has been very low mainly because of low interest rates. Long term bonds are what to own if you time them right. Stocks are like the Roman empire, today they might look good but all your money will end up in smithereens or ruins just like old Rome.

There are situations in which an all government bonds portfolio makes sense. Being a retired expat non resident of Canada with a fairly large portfolia is one such case. The earnings are not subject to Canadian taxation, for a start. And the risk is minimal, so one does sleep well.

I might add that the hockey stick tendency of you dividends graph from about 2010 is in no small mrasure a consequence of massive buybacks and equally massive indebtedness of corporates pigging out on cheap money. One does wonder whether such stellar growth in dividends can be maintained as the price of money is getting higher. Those counting on such dividends might just be in for a rude surprise in the coming years as companies dial back such payments and unwittingly cause equities to creep lower.

I’ve never understood why to invest in bonds for the fixed income portion. Bond etfs have almost always lost capital in recent years. I can get 2.5% risk free in a liquid cash account at Tangerine Bank. No risk to capital and better yield than most bond funds.

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The fixed income portion of our client portfolios contain a diversified mix of bonds, some with more attractive yields, such as corporate and high-yield bonds. It also contains preferred shares. The overall fixed income allocation provides a yield north of 3.5% and, because it’s all ETFs, is fully liquid.

When you check the fine print, Tangerine only offers that 2.5% rate for six months.

Another good article, Doug. My husband and I both have defined pensions with COLA. It is ample steady income for our retirement years. Therefore, our investment portfolio is over 1 million in equities – a global ETF portfolio. I still can’t see why we want bonds – our pensions are the “fixed” income of our portfolio. We have also gone through turbulent markets and haven’t bailed. Am I still missing something?

Good post Doug. With rates increasing and equities doing fine, how come preferred shares index CPD is not back above 15 or 16 yet? I could guess but would appreciate your short answer as it relates to your topic. Thanks in advance.

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The market is speculating that the ongoing NAFTA negotiations or the Trans-Mountain Pipeline delays are going to overhang the Canadian economy and delay interest rate increases.

But the Bank of Canada will eventually follow the Fed’s lead–it always does.

And Canadian preferred shares have had a fantastic two-year bull run. A breather should be expected.

#8 it depends on how much you have. If you’re above 65, collecting a government pension plus a private one and still have more than 2 million on the bank, you will have a risk free and good retirement just by investing in bonds. This is the case of my uncle.

CPD is not back above 15 or 16 ever . Look at the long term chart its a
perpetual downhill run . That`s the way preferred shares are structured.
Collect the dividend while your capital slowly evaporates. Then some times not so slowly.

#36 cmj on 05.05.18 at 7:29 pm
Another good article, Doug. My husband and I both have defined pensions with COLA. It is ample steady income for our retirement years. Therefore, our investment portfolio is over 1 million in equities – a global ETF portfolio. I still can’t see why we want bonds – our pensions are the “fixed” income of our portfolio. We have also gone through turbulent markets and haven’t bailed. Am I still missing something?
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Excellent point! Doug for those of use with DB pensions does it ever make sense in your opinion to treat that as the bond allocation – fixed income portion of our portfolios? I’m following Garth’s Millennial portfolio and am quite happy with the results – but wonder about whether the stability of my DB pension is is equatable to the stability function of bonds. I make the assumption my DB pension doesn’t go Sears-up for my organization (it’s externally managed).

My research indicates that the equity risk premium basically disappeared in Canada in the early 1980s. In that, bonds and equities have had roughly equivalent performance, with bonds perhaps even outperforming stocks given that the past decade has been abysmal for the TSX stocks. Returning little other than dividends paid.

Of course, we can’t extrapolate this trend into the indefinite future. We have GoC bonds priced at yields slightly over 2%, but the stock market is priced at a E/P of roughly 7%, with earnings growth giving us another 3-5% annually for an implied return of 10-12%/annum.

If we assume that 2-3% is the implied return of the bond market going forward for the next 30 years, based on 30-year yields, the equity risk premium is likely to come back with a vengeance. With an equity risk premium implied at somewhere between 8-10%.

Canadian Millennials that are crying right now that they can’t afford housing, perhaps they’re being handed an epic opportunity in equities right now? Or is there something fundamentally that will cause the Canadian equity risk premium not to re-appear going forward?

Thanks for asking about that Flop. Like I said earlier, I had googled mobiles, there is info there, and a surprising percentage of mobiles in most states. Something really missing here in Canukistan for the bottom end earners. A high end loaded 35′ park model is all any couple really needs.

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As for interest, my parents retired well collecting interest, as did their parents. Me? It looks like principal will supliement the food in my bowl. Until there is none of either.

I still don’t see how equities can do well with an aging population and money flowing to bonds for income.
……………………………….
If you retire at 65 and live until 85 income alone is probably not enough. You need some growth too. Equities will provide more growth than bonds.

I still don’t see… how GTA re is a bad investment if rates are only going up a little…and then back down.
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Prices were driven up by two factors: the decreasing costs of borrowing; and the perception that prices would go up. If there is a long enough fall to change the perception, cheap rates will not result in people paying more than fundamentals would support. See Japan, where money has been essentially free, more or less forever, and you can buy a house with the loose change in your pocket.

Toronto is such a mediocre, fifth rate wasteland in so many ways. Yet another implausible aspiration is crashing to the ground.

Your MLSE sports teams are the perfect symbol for your terrible infrastructure, wildly overpriced shacks and the total lack of common sense among your deluded resident-speculators driving up housing costs.

What I read from the above is that right now is a good time to buy dividend paying companies like BCE. Yes, bond interest rates will go up but have a way to go before they give the same yields as these companies that are on sale now.

They yield consistently less than inflation and constitute pretty much ‘return free risk’.

Let’s be clear here:

Normally bonds are sovereign/corporate/municipal debt priced in ‘money’ and subject to interest rates that represent the real/market cost of money.

What we see on the bond market today is debt that is not measured in money (as the confetti/coupons with expiration date that we call money are actually currencies) and with rate that is not determined by markets (but by central banks).

So why would anyone even consider this ‘bonds’ when compared to stock market is a mystery to me.

But hey, there are plenty of idiots around these days, just look at Canadian housing market and bitcoin

“I still don’t see how equities can do well with an aging population and money flowing to bonds for income.”

The fewer people who are interested in (Canadian) equities, the cheaper they remain, and hence, the better they perform. The availability of cheap debt financing will allow the underlying businesses to borrow cheaply, thus accruing additional returns to equity.

If you’re a long-term stock investor (or even a long-term RE investor), the worst nightmare you should have during the accumulation phase is a stock market (or RE) bubble. Bubbles destroy accretive re-investment opportunities. Bubbles drive a lot of capital into a sector stimulating excess capacity which destroys returns, sometimes for an entire generation.

As it stands right now, with the lack of mortgage growth at the Canadian banks due to house price stagnation (since 2013), and now falling prices, the banks will have to invest their money elsewhere. Re-capitalizing large corporations is a convenient way to invest a lot of money, and Canadian large-cap corporations are historically very under-leveraged. Its certainly possible over the next number of years that we’ll be seeing some big leveraged buyout deals, or at the very least, a lot of corporate borrowing for the purpose of paying out huge dividends. Which, even in the absence of buyers of stock due to demographic and social trends, should drive significant returns going forward.

I personally don’t like bonds and volatility doesn’t scare me, I had a 100% stock portfolio during the gfc. I didn’t sell and continued to buy up until I got married. Now I have a 60/40 split, I’m smart enough to know that my wife would really be angry if our portfolio dropped 30-40%. Happy wife happy life, better to try and smooth out the volatility with balance and diversification than it is to argue with my wife.

So she always wants it up, never down (the portfolio I mean…)? You are one lucky man, keep her happy :)

The stock market in America is the most overvalued since the year 1873. The corporate default rate has been very low mainly because of low interest rates. Long term bonds are what to own if you time them right. Stocks are like the Roman empire, today they might look good but all your money will end up in smithereens or ruins just like old Rome.

So buy also Europe, Asia, much better P/E, much earlier in the credit cycle.

Do not forget the unit of measure when you say overvalued, keep in mind these are expiration coupons, not money as a store of value.

#45 MF on 05.05.18 at 9:02 pmThanks for the responses Doug,
I still don’t see how equities can do well with an aging population and money flowing to bonds for income.
Or how GTA re is a bad investment if rates are only going up a little…and then back down.
MF
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I thought mills outnumber boomers, and boomers are dying off. The next set of wrinklies will be Gen Xers, and there were never as many of us. The chart he gave shows median working age possibly because of a lack of pensions and savings means people are retiring later. Boomers without savings aren’t shifting from equities to bonds, they’re greeting you at wal-mart so they don’t have to eat cat food.

As for GTA houses, if rates go up just a little for 5 years, and go down just a hair or level off for 5, then (as detailed on this blog many times) renting for less and investing is much better.

I would consider a balanced portfolio if I was 70++. Reason: I don’t care what happens when my dividends keep flowing in and I have regular employment income above my needs. Dividends and spare cash buy more stocks….adding more to increase cas flow when the market tanks. I’m an all growth guy…I’ll sleep when Im dead….ditto for “balance”. I wanted my million now, not twenty years from now. Controversial? Sure..but I know the world is always going to been gas, oil, telecom, hotels and hardware stores. I don’t think Rogers and BCE are going anywhere except up over the longer term and they’ve appreciated far more than a balanced portfolio….sure volitility, but if you got income why care about safety? Grow cash instead. Ergo. All equity, no bonds , no indexing. As my wife told me decades ago when so was a much younger stock picker…”Just pick the ones that go up”.

The fixed income portion of our client portfolios contain a diversified mix of bonds, some with more attractive yields, such as corporate and high-yield bonds. It also contains preferred shares. The overall fixed income allocation provides a yield north of 3.5% and, because it’s all ETFs, is fully liquid.
When you check the fine print, Tangerine only offers that 2.5% rate for six months.
–Doug

The fixed income allocation may yield that but I bet when you take in capital losses it is no more than Tangerine 2.5%. And Tangerine has been rolling over the promotional rate for a long time for me, if you ask.
I’ll take 2.5% CDIC insured, liquid, no trading costs, no management fee.

So Doug, in your professional opinion, how many months/years do you see it taking the Federal Reserve to get the overnight rate to the 3-3.5 range? I mean assuming no major hiccups, would you expect this to be achieved by the end of 2019 at this rate?

Do you see Canada topping out in the same range? If so, how many months/years behind do you think we will be? In other words, in what year/month do you see us reaching the top of this cycle (roughly)?

I am in the same boat and just researched this, to include Globe Finance, Couch Potato, plus some US websites. Basically, a good DB pension allows for greater risk tolerance. If you need higher risk to achieve greater returns, then you could go 100% equities. Conversely, if your pension and investments will likely meet your retirement needs, then you do not need unnecessary risk and could go 100% bonds.

FWIW, I am 52, semi-retired with an 80K/yr DB pension, and currently a bit too high with 38% fixed-income in my portfolio, but sleep very well !!

Last weekend i took my son fishing same place we go once in a while, and we didn’t catch not one fish.

Ok we can question, my fishing skills but place we went always produced unlimited amount of yellow perch and sunfish, that day nothing.

What i noticed tons of cormorants are feeding in the are, not good. Over the past few years i’ve been watching cormorant colony of eastport road and every year is getting bigger and bigger, i believe that goby fish and cormorants are doing a number on fish stock in a Hamilton bay area.

I would like city to hire some mean spirited dudes with 12g and start controlling ecosystem destroying bustards lethal way.Non lethal way was tried in Presqu’ile provincial park, and actually resulted in increase of 40 percent increased population on site.

City of Hamilton please do something, or kids won’t have fun fishing this year because all spawning yellow perch is being eaten buy double-crested cormorants.

So Doug, in your professional opinion, how many months/years do you see it taking the Federal Reserve to get the overnight rate to the 3-3.5 range? I mean assuming no major hiccups, would you expect this to be achieved by the end of 2019 at this rate?

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The past 4 Fed tightening cycles have averaged 670 days. The current cycle is already more than 850 days, so we’re already long historically. However, given the unprecedented low rates that we’re rebounding from, this cycle could easily last more than the average. The 2004 to 2007 tightening cycle lasted almost 1,200 days.

But, as you mention, it’s all about the “hiccups”. The current cycle could come to an abrupt halt for unexpected reasons.

So she always wants it up, never down (the portfolio I mean…)? You are one lucky man, keep her happy :)
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She’ll accept it if is slightly down, but if I show up with it looking like a turtle in its shell she’d freak. The portfolio of course lol.

My wife is a teacher, she makes around 90k a year. Imagine if the portfolio (95% money I earned) lost 5-6 times her annual salary. That would lead to arguments I wish to avoid.

In the end most fail because they don’t have goals. Mine has always been 200k a year after tax inflation adjusted beginning at 58-60. I believe that’s he magic number to fully enjoy life. Anything more doesn’t add enough happiness to justify the effort. Everyone will have different opinions regarding a magic number, that’s mine.

I took the risks in my late 20s and early 30s now I just need to keep doing what I’m doing until I get there.

My advise to anyone in their 20s don’t be afraid to take risks, you have nothing to lose. I lost everything I had 3 times, once at 16 (fathers death), 23 and again at 26. In hardship is when you learn what your capable of. My life is really easy now, and it’s boring. I’m happy with boring because I’ve seen what hard is. Don’t let your parents shelter you from life, you’ll regret it.

That would indeed have been easier than my 31 years of military service, with multiple overseas deployment, long hours and constant studying to keep progressing! Any smart person with a university degree (an oxymoron for our Smoky!) could have done the same, so no guilt whatsoever!

@#77 Keen Reader
Ahhh yes the military gravy train.
Well done.
Join at 18.
How old were you when you semiretired? 49?
Officer with a full pension?
Life expectancy of another 40 years?
80k a year with inflation bump ups?

Like THATS affordably sustainable for unpensioned Canadian taxpayers to continue funding the shortfalls.

I was in Ottawa last year walking through downtown. A few paces behind a uniformed officer. We stopped at a crosswalk waiting for a light. A fellow military officer joined us and spoke to the 1st officer.
“Where’ve you been? Have’nt seen you for ages.”
“I burned my hand pouring a cup of coffee at the office and took a month off.” He started laughing, ” Because it happened at the office it was work related at they gave me a medal.”

Im not kidding. I walked away shaking my head.

I met a guy a few weeks back at work in BC from the same city as me , same age , we both graduated the same High school at the same time.
He was as stupid as a stick in High school.
His dad helped him get into the Navy at 18.
He’s now retired, full pension, went back to work full time for SNC Lavalin…..now riding the sub contractor military “inspector” gravy train for SNC.
He’s no smarter but very good at blindly following instructions…

But hey!
If the Canadian federal employee pension system eventually implodes under its own financial unsustainability……. dont blame me.

So she always wants it up, never down (the portfolio I mean…)? You are one lucky man, keep her happy :)
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She’ll accept it if is slightly down, but if I show up with it looking like a turtle in its shell she’d freak. The portfolio of course lol.

My wife is a teacher, she makes around 90k a year. Imagine if the portfolio (95% money I earned) lost 5-6 times her annual salary. That would lead to arguments I wish to avoid.

In the end most fail because they don’t have goals. Mine has always been 200k a year after tax inflation adjusted beginning at 58-60. I believe that’s he magic number to fully enjoy life. Anything more doesn’t add enough happiness to justify the effort. Everyone will have different opinions regarding a magic number, that’s mine.

I took the risks in my late 20s and early 30s now I just need to keep doing what I’m doing until I get there.

My advise to anyone in their 20s don’t be afraid to take risks, you have nothing to lose. I lost everything I had 3 times, once at 16 (fathers death), 23 and again at 26. In hardship is when you learn what your capable of. My life is really easy now, and it’s boring. I’m happy with boring because I’ve seen what hard is. Don’t let your parents shelter you from life, you’ll regret it.

I heard a bit of advice that one should keep 5 years of retirement income in bonds so you ride out an equity storm. You sell the bonds when you need cash. It is particularly important when you move into your genetic years and you can’t afford to wait. Do I follow? – nah. I just hope my preferred shares will do the trick. I bought at the right time but nothing lasts forever although many things will outlast me. I don’t intend to be a coffin dodger.

I agree with your view on interest rates because I don’t see major inflation ahead, yet. The falling Canadian dollar will cause pain but, fundamentally, there is no demand push for money except for dead real estate. The velocity of money is still low thanks to debt and should remain that way in my view.

If you have a $10 mill portfolio – bonds are unnecessary. You are better off building a huge insurance policy (tax-free), borrowing against the cash value (any bank will lend you at prime) and then investing in low volatility dividend stocks like banks, telecom, utilities etc. (deducting the interest) and living off the dividends. I (and wife) have been generating 150K each year without paying a dime in tax. The overall portfolio continues to grow 500K a year. All perfectly legal.

“So, while interest rates and bond yields are still going higher, the overnight rate will probably stall out at about 3% or 3.5% and then we’ll, in all likelihood, witness a resumption of the long, inexorable, downward move in interest rates and bond yields. A whole variety of factors support this long-term trend not the least of which is an ageing population seeking safety and consistent income.”

This makes no sense. Older folks would surely love higher yields on bonds

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The views expressed are those of the author, Garth Turner, a Raymond James Financial Advisor, and not necessarily those of Raymond James Ltd. It is provided as a general source of information only and should not be considered to be personal investment advice or a solicitation to buy or sell securities. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor's circumstances and risk tolerance before making any investment decision. The information contained in this blog was obtained from sources believed to be reliable, however, we cannot represent that it is accurate or complete. Raymond James Ltd. is a member of the Canadian Investor Protection Fund.